CFO pay increases, but CEO pay climbs more

The pay gap between CFOs, who already make less than one-third as much as CEOs, and chief executives appears to be widening.

Total compensation for CFOs at S&P 500 companies is rising, but the increases aren’t keeping pace with those for chief executives.

The main reason, according to research by Mercer: CEO pay at the biggest 100 companies grows at a far higher rate, even though it increasingly relies less on base salary as a percentage of total compensation.

CFO pay rose 5.9% in 2011, and the finance chiefs at the biggest 100 companies in the S&P list received an average of $4.34 million. The percentage of CFO pay consisting of salary dropped from 27% to 24%, reflecting a trend toward more variable compensation in the form of incentives.

In 2011, median base salaries for CFOs in the 100 biggest companies were 50.7% of median salaries for CEOs in the same group. That’s a decrease from 54.7% in 2009. For the rest of the S&P, the “Other 400,” however, the pay gap is closing: CFOs’ median salary was 54.2% of median CEO salary in 2011, up from 50% in 2009. But that wasn’t enough to close the overall gap between CFO and CEO compensation.

The CFOs’ median overall pay as a percentage of CEO’s pay was 31.4% in 2011, a decline of 1 percentage point from 2010 numbers, according to Mercer, a human resources consultant, which analysed 2009 to 2011 data-year proxy statement disclosures filed with the US Securities and Exchange Commission by each S&P 500 company.

That CFOs still make less than a third of CEOs could present a perception problem for public companies.

Ted Jarvis, Mercer’s global director of rewards data, research and publications, says that stakeholders are scrutinising the pay disparity as an indicator of a company’s governance problems. He says that full implementation by the US of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which calls for public companies to disclose CEO-to-worker pay ratios, could lead to a narrowing of the gap.

“I think (the gap) is the canary in the coal mine,” he said. “With Dodd-Frank, there may be a resurgence in the idea of internal equity.”
Jarvis said determination of a CEO’s pay is often done by examining surveys on the pay of similar companies’ chief executives. Market forces drive the compensation package, not what the CFO or other executive is making.

“It’s an alignment based on competitive practice,” Jarvis said. “I don’t think many companies think about relative worth – they think in terms of competitive compensation. These are the ratios that are the outcome of that.”

The portion of salary decreased more for CFOs of the 100 biggest companies (26% in 2009 to 22% in 2011.) The Other 400 salary portion dropped from 29% to 25% in the same time period.

CEO salary as a percentage of total compensation is just 16%.

“CFOs might get paid about one-third less, but they also have a different leverage,” Jarvis said. “The CEO’s pay package is more variable.”

The median salary for CEOs in S&P 500 companies rose 3.7% to an average of $559,000. CFO salary at the top 100 was higher than that ($704,000), while among Other 400 CFOs, the median salary was $542,000. Mercer says company size has something to do with the pay discrepancy. The S&P 100 companies have six times the annual revenue of the Other 400: $38.44 billion to $6.27 billion.

Mercer’s research showed that the value of long-term incentives granted to CFOs is approximately one-fourth of the value granted to CEOs. Also, 68% of companies employ cash- or equity-based performance awards for CEOs compared to 64% for CFOs.

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Neil Amato ( is a CGMA Magazine senior editor.